Monday, September 2, 2013

FYI: 7th Cir Reinstates Prior Class Certification Ruling, Distinguishing Comcast v. Behrend

The U.S. Court of Appeals for the Seventh Circuit recently distinguished the U.S. Supreme Court's decision in Comcast v. Behrend, 133 S. Ct. 1426 (2013) – which held that a damages claim cannot be certified as a class unless the damages sought are the result of the class-wide injury that the suit alleges – ruling that there was a single, central, common issue of liability, and therefore predominance was satisfied and class certification was proper under Federal Rule of Civil Procedure 23(b)(3).


In so ruling, the Seventh Circuit reinstated its judgment, certifying two separate classes after the Supreme Court vacated the Seventh Circuit's ruling and remanded for further proceedings. 


A copy of the opinion is available at: Link to opinion.


A seller sold washing machines in overlapping periods beginning in 2001 and 2004, with two separate alleged issues.  One set of washing machines allegedly used low volume and temperature of water, which did not allow the washing machines to clean themselves adequately.  This supposedly resulted in mold accumulation and bad odors (the "mold class").  Traditional household cleaners allegedly did not eliminate the molds or the odors. Roughly 200,000 of these machines were sold each year and there allegedly have been many thousands of complaints of bad odors by the machines' owners.


The district court denied certification of the mold class.  On appeal, the Seventh Circuit previously reversed, finding that a class action is an efficient procedure for litigating such a case – one that involved a defect that may have imposed costs of tens of thousands on consumers, yet not a cost large enough for any single plaintiff to justify the expense of a single suit.  The Seventh Circuit ruled that the question of whether the machines' defect in permitting mold to accumulate and generate noxious odors was common to the entire class, despite there being likely variance in damage across the class members.


The second class action involved a computer device that gives instructions to a washing machine's various moving parts (the "control unit class"). In 2004 the company that supplied these control units in the manufacturer's washing machines allegedly altered its manufacturing process in a way that caused some control units mistakenly caused the computer to "believe" that a serious error had occurred and therefore to order the machine to shut down, though actually there had been no error. The control unit class plaintiffs alleged that the seller knew about the problem yet charged each owner of a defective machine hundreds of dollars to repair the central control unit.

The principal issue in the control unit class action was whether the control unit was defective. The only individual issues concern the amount of harm to particular class members, as pointed out by the Seventh Circuit was whether it was more efficient for the principal issue—common to all class members—to be resolved in a single proceeding than for it to be litigated separately in hundreds of different trials.


The district court granted certification of the control unit class.  On appeal, the Seventh Circuit previously affirmed.


Following the U.S. Supreme Court's decision in Comcast, the Supreme Court vacated the Seventh Circuit's ruling and remanded for further proceedings.  The question presented by the Supreme Court's remand was whether the Comcast decision cut the ground out from under the Seventh Circuit's decision ordering that the two classes be certified. 


On remand, the seller requested that the Seventh Circuit remand the case to the district court for a fresh ruling on certification in light of Comcast, or alternatively to deny certification in both class actions. The class plaintiffs requested the Seventh Circuit reinstate its judgment, granting certification in both.


Although the case remained pending in the district court, the Seventh Circuit ruled on certification because class action suits are tentative and can be revisited by the district court as changed circumstances require. Fed. R. Civ. P. 23(c)(1)(C); Advisory Committee Notes to 1966 Amendment of Rule 23(c)(1); Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, 133 S. Ct. 1184, 1202 n. 9 (2013); Johnson v. Meriter Health Services Employee Retirement Plan, 702 F.3d 364, 370 (7th Cir. 2012).


The Seventh Circuit analyzed the impact of the Comcast decision on its initial rulings.  The Seventh Circuit recognized that "Comcast holds that a damages suit cannot be certified to proceed as a class action unless the damages sought are the result of the class-wide injury that the suit alleges." Comcast was an antitrust suit, and the Court said that "if [the plaintiffs] prevail on their claims, they would be entitled only to damages resulting from reduced over builder competition, since that is the only theory of antitrust impact accepted for class-action treatment by the District Court. It follows that a model purporting to serve as evidence of damages in this class action must measure only those damages attributable to that theory. If the model does not even attempt to do that, it cannot possibly establish that damages are susceptible of measurement across the entire class for purposes of Rule 23(b)(3)."" Comcast, 133 S. Ct. at 1433. "[A] methodology that identifies damages that are not the result of the wrong" is an impermissible basis for calculating class-wide damages." Id. at 1434.


The seller argued that the Comcast decision rejects the notion that efficiency is a proper basis for class certification, and thus rejected the Seventh Circuit's statement that "predominance" of issues common to the entire class, a requirement of a damages class action under Rule 23(b)(3), "is a question of efficiency." 

The Seventh Circuit ruled that the seller incorrectly compared the design changes that may have affected the severity of the mold problem to the different antitrust liability theories in Comcast. The Seventh Circuit concluded that it was not the existence of multiple theories in Comcast that precluded class certification; rather, it was the plaintiffs' failure to base all the damages they sought on the antitrust impact—the injury—of which the plaintiffs were complaining.


Unlike the class plaintiffs in Comcast, the Seventh Circuit held any buyer of the subject washing machine who experienced a mold problem was harmed by a breach of warranty alleged in the complaint.


The Seventh Circuit found Comcast distinguishable from the case at hand: "Unlike the situation in Comcast, there is no possibility in this case that damages could be attributed to acts of the defendants that are not challenged on a class-wide basis; all members of the mold class attribute their damages to mold and all members of the control-unit class to a defect in the control unit."


The Seventh Circuit further concluded that the Supreme Court remanded the case for reconsideration because of the requirement of predominance and on its having to be satisfied by proof presented at the class certification stage rather than deferred to later stages in the litigation.  The Seventh Circuit ruled that the Supreme Court "doesn't want a class action suit to drag on for years with the parties and the district judge trying to figure out whether it should have been certified."

Further clarifying, the Seventh Circuit noted that because the class in Comcast was seeking damages beyond those flowing from the theory of antitrust injury alleged by the plaintiffs, the possibility loomed that "questions affecting only individual members" of the class would predominate over questions "common to class members," rather than, as Rule 23(b)(3) requires, the reverse.


The Seventh Circuit rejected the seller's argument that predominance is determined by examining whether there are more common issues or more individual issues, regardless of relative importance. The Seventh Circuit recognized an issue "central to the validity of each one of the claims" in a class action, if it can be resolved "in one stroke," can justify class treatment.  Wal-Mart Stores, Inc. v. Dukes, supra, 131 S. Ct. at 2551.


Moreover, the Seventh Circuit concluded that predominance requires a qualitative assessment, citing to the Supreme Court's ruling in In Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, supra, 133 S. Ct. at 1196, where the Supreme Court said that the requirement of predominance is not satisfied if "individual questions…overwhelm questions common to the class," and in Amchem Products, Inc. v. Windsor, 521 U.S. 591, 623 (1997), where the Supreme Court stated that the "predominance inquiry tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation."


According to the Seventh Circuit, if each class member were required to have identical damages, class actions seeking damages would be impracticable.  The Seventh Circuit continued "[i]f the issues of liability are genuinely common issues, and the damages of individual class members can be readily determined in individual hearings, in settlement negotiations, or by creation of subclasses, the fact that damages are not identical across all class members should not preclude class certification."


The Seventh Circuit posited the implications of such a ruling: if damages were required to be identical, defendants could escape wide scale liability that could not be remedied through individual suits. 


The Seventh Circuit ruled that there was a single, central, common issue of liability: whether the seller's washing machine was defective. Two separate defects were alleged, but the pending suit was essentially two class actions. In one the defect allegedly involved mold, in the other the control unit. Each defect was central to liability.  Although the Seventh Circuit acknowledged that there may be complications arising from the design changes and from separate state warranty laws, the Seventh Circuit provided that this could be handled by the creation of subclasses.
Lastly, the Seventh Circuit noted that the Sixth Circuit upheld the certification of a single mold class in a nearly identical suit, except that it did not involve the other claim in the pending case, the control unit claim.  The Sixth Circuit interpreted Comcast similarly to the Seventh Circuit, and concluded that the requirement of predominance was satisfied.


Accordingly, the Seventh Circuit reinstated its judgment.



Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
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Chicago, Illinois 60602
Direct: (312) 551-9320
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